Broadcom to buy Symantec unit for $10.7bn

November 2019 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

November 2019 Issue

In August, Broadcom Inc announced that it had agreed to acquire Symantec Corp’s enterprise security unit for $10.7bn in cash.

The deal, which had been the topic of speculation since early July, is expected to close in the first quarter of Broadcom’s fiscal year 2020, pending regulatory approval in the US, European Union and Japan.

Broadcom, which manufactures and supplies a broad range of semiconductors and infrastructure software, has announced plans to raise fresh debt to fund the all-cash acquisition.

Broadcom said it expects the combination to result in more than $1bn in run-rate cost synergies in the 12 months after the deal has closed, partly by eliminating redundancies. Symantec plans to return the proceeds of the deal after tax to investors as a $12-per-share special dividend in the fourth quarter of 2019 and buy back an additional $1.1bn worth of shares.

“M&A has played a central role in Broadcom’s growth strategy and this transaction represents the next logical step in our strategy following our acquisitions of Brocade and CA Technologies,” said Hock Tan, president and chief executive of Broadcom. “Symantec’s enterprise security business is recognised as an established leader in the growing enterprise security space and has developed some of the world’s most powerful defence solutions that protect against today’s evolving threat landscape and secure data from endpoint to cloud. We look forward to expanding our footprint of mission critical infrastructure software within our core Global 2000 customer base.”

“Symantec has a long history of offering unparalleled cyber technology,” said Daniel H. Schulman, chairman of the Symantec board. “It is a testament to our market leadership and dedication to the mission of making the world a safer place, that Broadcom has chosen Symantec’s Enterprise Security assets to expand their reach into cyber security. By unlocking value from Enterprise Security, we are significantly advancing our ongoing transformation strategy and positioning our consumer cyber safety business, Norton LifeLock, for success.”

“This is a transformative transaction that should maximise immediate value to our shareholders while maintaining ownership in a pure play consumer cyber safety business with predictability, growth and strong consistent profitability,” said Rick Hill, interim president and chief executive of Symantec. “In addition it allows the Enterprise Security business to grow and compete on an enterprise platform with a worldwide sales and distribution reach which can service our existing customers. It also allows our Norton LifeLock business, a world recognised leader in consumer and small business cyber safety to operate independently and give investors a clear understanding of the growth opportunity and strong financial performance.”

Broadcom’s recent M&A efforts have seen mixed success. In 2018, the company bought US business software maker CA Inc for $18.9bn and was reportedly in talks to acquire infrastructure software company Tibco Software Inc, which was taken private by Vista Equity Partners for $4.3bn in 2014. However, last year also saw the failure of the company’s attempt to buy mobile chipmaker Qualcomm Inc for $117bn. The prospective deal for Qualcomm was blocked by the Trump administration, citing national security concerns.

Broadcom’s proposed acquisition of Symantec will not be subject to the same level of review as the Qualcomm deal, however. The Committee on Foreign Investment in the United States (CFIUS), which was involved in blocking the Qualcomm deal, will not rule on the merger as Broadcom moved its headquarters from Singapore to San Jose, California in April 2018.

Broadcom expects the acquisition of the Symantec unit to add approximately $1.3bn in pro forma earnings before interest, taxes, depreciation and amortisation (EBITDA), including synergies. In the first quarter of the company’s fiscal 2020, which ended 5 July 2019, the unit generated approximately 50 percent of Symantec’s revenue, at $2.5bn, but only 10 percent of its operating income. Revenue at the unit being sold to Broadcom rose 9.9 percent to $611m in its last fiscal year, according to the latest financial results.

Richard Summerfield